FORTUNE Special: Despite Poor Performance, CEOs Get Paid More Than Ever; Use of Options Declines, But Other Forms of Compensation -- Including ``Stealth Wealth'' -- Are Growing.Business Editors NEW YORK--(BUSINESS WIRE)--April 14, 2003 Despite the cry for reform after the corporate scandals A corporate scandal is a scandal involving allegations of unethical behavior by people acting within or on behalf of a corporation. A corporate scandal sometimes involves accounting fraud of some sort. of recent years, CEO (1) (Chief Executive Officer) The highest individual in command of an organization. Typically the president of the company, the CEO reports to the Chairman of the Board. compensation continues to rise. For an upcoming cover story, FORTUNE magazine analyzed CEO compensation at the 100 largest companies that filed proxy statements Proxy Statement A document containing the information that a company is required by the SEC to provide to shareholders so they can make informed decisions about matters that will be brought up at an annual stockholder meeting. for 2002. The findings? Average CEO compensation dropped 23% in 2002 -- mostly because the pay of a few mega-earners fell significantly. Meanwhile, median compensation, a more telling number, rose 14%, to $13.2 million -- in a year when the total return of the S&P 500 was down 22.1%. The story, "Have They No Shame?," by senior writer Jerry Useem, appears in the April 28 issue, available on newsstands April 21 and at www.fortune.com. "Corporate reform has failed," said FORTUNE's Useem. "Not only does executive pay seem more decoupled from performance than ever, but boards are conveniently changing their definition of performance." Some are lowering the bar so that the CEO can clear it and earn a bonus. Others are boosting use of restricted stock. While this has advantages over stock options (mainly easing shareholder concerns about dilution and "option overhang Overhang Calculated as stock options granted, plus the remaining options to still be granted, and then divided by the total shares outstanding. Notes: A high percentage for the overhang is usually a bad thing. ") it has little to do with rewarding performance. Finally, there is the use of "stealth stealth Any military technology intended to make vehicles or missiles nearly invisible to enemy radar or other electronic detection. Research in antidetection technology began soon after radar was invented. compensation." Deferred compensation plans, for instance, let executives stock up to 100% of their salary and bonus in a tax-advantaged account until retirement, often with the addition of a company match and above-market interest. Meanwhile, as FORTUNE writer Janice Revell notes in a related story, "CEO Pensions: The Latest Way to Hide Millions," many pension plans credit executives with decades of unserved "service," even shielding them from creditors in the event of bankruptcy. The most common form of this stealth compensation is an enhanced version of the traditional defined-benefit pension plan defined-benefit pension plan A pension plan in which retirement benefits rather than contributions into the plan are specified. Thus, a retired employee who has reached a certain age with a given number of years of service and has earned a certain income is called a SERP (1) (Search Engine Results Page) The page of results that a search engine returns. It includes links to pages that have been automatically discovered by crawlers, manually indexed by people or that are paid for by advertisers. See search engine. (for supplemental executive retirement plan.) Because SERPs aren't subject to the same restrictions that govern traditional plans, corporate boards have free rein free rein n. Unlimited freedom to act or make decisions: gave me free rein to reorganize the department. Noun 1. to use them to deliver virtually any amount of money to an executive at any time -- even if he's on the way out the door. So CEOs at scores of companies have managed to get years -- sometimes decades -- of service tacked onto their pensions. And, FORTUNE reveals, some corporate boards seemingly will do almost anything to protect the pensions of their top guns -- regardless of performance, and even if the company is on the way to financial ruin. So why aren't investors up on arms over these jaw-dropping giveaways? Because hardly anyone knows about them, says FORTUNE. The complex details surrounding such plans are typically buried deep within a company's SEC filings, far removed from salaries, bonuses, and stock options that dominate the headlines. In addition, companies are not required to break out the amount they spend on executive pensions in their financial reports. "It's going to take more than tinkering tin·ker n. 1. A traveling mender of metal household utensils. 2. Chiefly British A member of any of various traditionally itinerant groups of people living especially in Scotland and Ireland; a traveler. 3. to reverse a dynamic this powerful," said Useem. "And there's only one way to do it: address a basic power imbalance. Somewhere along the line, managers -- who are, after all, just hired hands -- started behaving as if they owned the place. And the real owners -- mostly mutual funds and pensions -- started behaving as if they didn't. Until the owners come back in, the pigs will be running the farm." |
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